Younger investors reject fund managers in favour of ETFs - and optimistically predict a 10% return on their investments

Has the younger generation dismissed the idea of fund managers beating the market?

Figures from a global investment survey suggest that could be the case. Nine out of 10 of the so-called millennial generation investing in shares around the world do so via an exchange traded fund, according to a survey by global fund house Legg Mason.

But a separate survey suggests this cohort of investors may end up disappointed however they choose to invest.

The Schroders Global Investor Study found millennial investors in the UK expected a 10.2 per cent level of income from investments - far higher than the FTSE All-Share's current 3.75 per cent yield.

Millennial mindset: Nine out of 10 use ETFs for their investments but many may be hoping for too much

And despite this seemingly misplaced optimism, it seems UK millennials have more confidence in their investing skills than the older generation.

More than two thirds of those aged 18-35 said they have a greater understanding of investments than the average investor, while less than half of those over-35 said the same thing.

In the UK, 92 per cent of millennials - the 18-35 age group - invested via an ETF Legg Mason said, slightly higher than the global average.

An ETF tracks a set index and can be bought and sold on the stock market like shares. Crucially, while it should keep pace with its index, before charges, it will not manage to beat it, as it seeks to replicate performance.

Active fund managers on the other hand aim to cherry pick shares or other assets to beat the market, or their benchmark. Some manage this but many do not.

ETFs are typically much cheaper to invest in than active funds, with a total expense ratio of around 0.5 per cent, compared with an ongoing charge of around 1.6 per cent for actively managed funds.

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The ETF market is currently worth about £3.1trillion (£2.2billion), representing just 3 per cent of assets under management globally - but this looks set to rapidly increase.

Institutional investment advisers predict this figure will double in the next five years, according to research by ETF provider Source - with low costs cited as the main reason by 53 per cent of investors.

Other popular reasons cited by the respondents in the Source survey were greater choice, and superior liquidity.

Meanwhile, the Legg Mason Global Investment survey also indicates that younger people have a distorted view of the level of income on offer in today's investing environment.

The survey of 1267 millennials around the world found they expect to receive an 11 per cent rate of return on their portfolios annually.

US millennials have the most ambitious expectations, looking for a 14 per cent return, while Europeans expect to earn 8 per cent.

Ambitious: Younger investors are looking for an annual return of at least 10 per cent from their investments

The Schroders Global Investor Study found UK millennials have set their minimum desired level of investment income at 10.2 per cent per year, much higher than older investors, who were looking for a minimum of 6.6 per cent.

But with interest rates close to zero in the UK, they could have set themselves up for disappointment.

Just 5 per cent of millennial investors said they had less understanding of investments than the average investor, compared with 10 per cent of the older generation.

Millennials are also far more impatient when it comes to investing, with a shorter time horizon and more immediate goals.

While on average UK investors tend to hold their investments for just under five years, the typical millennial wants to hold theirs for half of that time.

In comparison, investors aged 36 and over look to hold their investments for an average of 5.4 years.

Life goals: One in four millennials would invest to help save up a housing deposit

The biggest motivation for those aged 18-35 was to scrape together a house deposit, with one in four citing that as their key reason to invest.

This was followed by 21 per cent who said they were funding a career change or obtaining a professional qualification, and a further 21 per cent who wanted their investments to help to pay the mortgage or rent.

Perhaps unsurprisingly, 60 per cent of the older generation were looking to supplement their pension with their investments, compared with 30 per cent of the under-36s.

The study surveyed 20,000 investors in 28 countries around the world, including 1,000 in the UK.

James Rainbow, of Schroders said: 'It is very encouraging that millennials are so engaged with their finances and that they are keen to learn more about investments.

'Given their investment goals, it's not surprising that millennials have a shorter time horizon however it's important not to sacrifice longer term goals, particularly retirement savings.

'Different goals, time horizons and attitude to risk will inevitably require a different investment mindset but these should be approached with care and wherever possible, with the help of a professional adviser.'